Even with Financial Authorities Easing Regulations and Tightening Soundness, Savings Banks Remain 'Indifferent' (Comprehensive)

Savings Banks Lukewarm on Limited M&A Easing
BIS Ratios Already High, Regulations Strict, "No Major Impact Expected"
Industry Says "Regulatory Easing Must Come at the Right Time"

[Asia Economy Reporter Song Seung-seop] While financial authorities have strengthened the soundness of savings banks and lifted the long-awaited merger and acquisition (M&A) regulations, the industry’s response has been lukewarm. The various attached conditions reduce the appeal of M&A, and voices from the industry, which already maintains a Basel International Settlement (BIS) ratio exceeding the standard, say that the introduction of the buffer capital system will have little impact.

Industry Lukewarm on Limited M&A Approval

According to the financial sector on the 4th, the Financial Services Commission announced its ‘2021 Financial Services Commission Financial Industry Bureau Work Plan’ the day before, stating that M&A between savings banks will only be allowed for companies that comply with the BIS ratio standards before and after the merger and have not been sanctioned for three years.

M&A among savings banks has long been considered one of the industry’s key demands. However, many in the industry expressed doubts about whether the authorities’ goal of ‘autonomous restructuring and efficient capital intermediation’ would be achieved. This is because only M&A between non-Seoul area savings banks is permitted, making it difficult for large savings banks to participate, and the operating area can only be expanded to a maximum of two regions under restrictive conditions. Currently, savings banks cannot own other savings banks, and ownership of three or more savings banks by the same major shareholder is prohibited; no measures to ease these restrictions were included.

Another obstacle cited was the mandatory requirement for the acquired bank to supply 40% of total loans and 90% of deposits in the relevant region as loans. Since capital demand decreases in provincial areas, there are concerns that the merger might hinder the expansion of loan volumes.

A savings bank official criticized, “For capital intermediation to become efficient through industry reorganization, it should be possible to increase loan amounts where human and material resources exist. While we understand the financial authorities’ intention to prevent the contraction of regional finance, it is true that the current M&A system makes it difficult to create synergy effects.”

High BIS Ratios and Strict Regulations... “Little Impact”

The industry consensus is also that the strengthened regulations will have ‘little impact.’ The Financial Services Commission announced the introduction of a buffer capital system requiring savings banks to accumulate capital 2 percentage points higher than the existing BIS ratio. Currently, savings banks with assets over 1 trillion won must maintain a BIS ratio of 8%, and those with less than 1 trillion won must exceed 7%. With this new system, the savings bank industry must maintain a minimum capital ratio of 9-10%.

The industry is already accumulating capital at levels twice the standard BIS ratio. As of September last year, the overall BIS ratio for the sector was 14.6%, and the top five savings banks (SBI, OK, Pepper, Korea Investment, Welcome) had 13.54%. Among all 79 companies, only one had a BIS ratio below 10% (9.9%), regardless of capital size.

The major shareholder’s ad hoc eligibility review system and the financial authorities’ immediate review measures when necessary are viewed similarly. Since other sectors already have related systems and the savings bank industry is subject to various high-intensity regulations, the general view is that there will be no significant impact. Another savings bank official said, “Many projects have not been carried out because regulatory easing by financial authorities was not timely. We have been subject to frequent large and small regulations even before, so the atmosphere is that this is not very important.”

Industry Calls for Swift and Bold Regulatory Easing Despite Tightened Soundness

The industry points out that even if soundness regulations are tightened further, swift and bold regulatory easing is necessary. Since savings banks operate under a positive regulation system with very limited permissible activities, there are complaints that it is difficult to pursue digital and non-face-to-face innovation and diversify services.

Another savings bank official lamented, “Many projects could not be carried out because regulatory easing by financial authorities was not timely. The branch approval system was only eased in November last year, when the industry-wide trend was to reduce offline branches.” He added, “If the pace of regulatory easing remains slow, it will not be positively helpful to the industry.”

Meanwhile, financial authorities plan to advance the savings bank credit scoring system (CSS) that supplies funds at reasonable interest rates and revise the model guidelines for loan interest rate calculation systems. They will review cost factors that determine loan interest rates, such as operating costs, and change the current calculation system toward a more rational direction.

This content was produced with the assistance of AI translation services.